You've got a good job and you've found a house you love. But you have been
buried under student loans -- or you've been traveling the globe without a care -- and
haven't been able to save for a down payment.
What You Want: Only a few years ago you had practically zero chance of getting 100%
financing. Lenders were so nervous about it, the option wasn't even on the menu. But the
refinancing boom of 1993 changed all that. Many potential refinancers had lost equity in
their homes. When lenders realized that didn't automatically make these people bad credit
risks, many started taking a chance on them -- and they're still doing it today.
Surprisingly, there are even rare cases of getting 100% financing without paying for
expensive mortgage insurance. (Mortgage insurance covers the lender in case you decide,
having put nothing down, to walk away from your loan. On a $100,000 loan, a policy will cost
you about $52 a month.)
The money in 100% financing these days usually comes bundled as a so-called 80-20 loan, or
"piggy-backed second." That is, there's a first mortgage for 80% of the total and a second
mortgage for the remainder. The bad news is that both come at astronomical rates. If you
have anything to put down -- even 3% -- you'll save yourself a bundle. That's because Fannie
Mae has standardized the lending criteria for 97% financing and will now buy these loans,
which means that practically every mortgage lender can offer them.
Where to Shop: In situations that are, shall we say, "odd," you're often best off
visiting a mortgage broker. These people act as agents, directing you to a lender and then
collecting a fee or a percentage of your loan amount. The fee is the key: They don't get
paid unless you get a loan. It's critical, though, to choose only a broker that comes highly
recommended -- and the recommendation should come from a friend or colleague who has
actually used the broker, not from your real estate broker or builder. Clients who use
mortgage brokers complain, for example, that brokers say they're canvassing a dozen or more
sources when they've really only checked with two or three. Other grievances: Brokers
tend to throw business to the lenders who are their friends, and they can slow the mortgage
process, making you wait for details about the terrific rate they've gotten you until it's
too near closing to shop anywhere else.